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Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements

Note 4—Fair Value Measurements

On a recurring basis, we measure certain financial assets at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

Level 1—Observable inputs for identical assets or liabilities, such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

In May 2010, we sold our remaining mortgage-backed securities and invested the proceeds in cash and cash-equivalent funds and mutual funds invested in highly liquid securities. This resulted in a sale of the $3.0 million in Level 2 investments as of December 31, 2009 and a subsequent purchase of Level 1 investments. Our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis are as follows:

 

    December 31, 2011  
    Level 1     Level 2     Level 3     Total  
    (in thousands)  

Assets:

        

Money market funds classified as cash equivalents and restricted cash

   $ 2,587      $ —        $ —        $ 2,587   

Money market funds classified as short-term investments

     20,565        —          —          20,565   
 

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 23,152      $ —        $ —        $ 23,152   
 

 

 

    

 

 

    

 

 

    

 

 

  

 

    December 31, 2010  
    Level 1     Level 2     Level 3     Total  
    (in thousands)  

Assets:

        

Money market funds classified as cash equivalents and restricted cash

   $ 2,323      $ —        $ —        $ 2,323   

Money-market funds classified as short-term investments

     38,715        —          —          38,715   
 

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 41,038      $ —        $ —        $ 41,038   
 

 

 

    

 

 

    

 

 

    

 

 

  

Cash of $1.6 million and $1.1 million is excluded in our fair-value hierarchy disclosure as of December 31, 2011 and 2010, respectively. Additionally, the fair-value hierarchy disclosure includes restricted cash of $193,000 as of December 31, 2011 and 2010. There were no unrealized gains and losses associated with our short-term investments as of December 31, 2011 or 2010.

Prior to their conversion to common stock warrants, the change in fair value of our preferred stock warrant liability and notes payable success fee liability was recorded as other income in the consolidated statements of operations. For the year ended December 31, 2009 we recorded other income of $848,000 related to the aggregate change in fair value of the preferred stock warrant liability and notes payable success fee liability. See Note 10 for a discussion of the valuation methodology used to estimate the fair value of the preferred stock warrant liability and the reclassification to additional paid-in-capital upon conversion of the preferred stock warrants to common stock warrants in connection with the IPO.